Critical success factors for managing purchasing groups

Abstract

In this article, we identify critical success factors for managing small and intensive purchasing groups by comparing successful and unsuccessful purchasing groups in a large-scale survey. The analysis of our data set suggests the following success factors: no enforced participation, sufficient total contribution of efforts, all members contribute with knowledge, continuity in member representation, communication, and fair allocation of savings. The findings suggest among other things that it is important that after a voluntary decision has been taken to cooperate, the members need to show that they are committed. Other factors such as interorganisational trust and formal structures are important when establishing interorganisational cooperation, but should otherwise be considered as necessary yet not sufficient in the management phase of a successful purchasing group.

Introduction

Purchasing in relatively small and intensive groups is becoming increasingly popular in both the private and public sector (Essig, 2000; Nollet and Beaulieu, 2003, Nollet and Beaulieu, 2005; Polychronakis and Syntetos, 2007; Tella and Virolainen, 2005). More and more organisations pool and/or share their purchasing volumes, information, and/or resources in purchasing groups in which the members share the workload between themselves. By doing so, these organisations combined in a group aim to obtain, among other things, lower purchase prices and reduced duplications of efforts and activities due to economies of scale, process, and information (based on Faes et al., 2000). In the literature, terms such as horizontal cooperative purchasing, pooled purchasing, alliance purchasing, and purchasing groups are used to refer to the concept of purchasing in a group. In the remainder of this article, we use the terms cooperative purchasing and purchasing group.

In a large number of cases, the advantages of cooperative purchasing can outweigh the costs of cooperation and disadvantages such as anti-trust (legal) issues and disclosure of sensitive information. Thus, at least in theory, cooperative purchasing can be a beneficial concept for organisations. However, in practice, small and intensive purchasing groups do not always flourish and premature endings of such groups occur (Schotanus, 2007). A better understanding of factors that play an important role in the success or failure of a purchasing group could help such groups to flourish and could prevent premature endings.

Unfortunately, current research offers little guidance in finding factors that play an important role in managing a purchasing group successfully (Essig, 2000). On a general level, there is an extensive amount of literature dealing with interorganisational cooperation, but a widely accepted comprehensive theory for successful interorganisational cooperation does not exist (Das and Teng, 2000). On a more specific level, some studies on success factors for interorganisational cooperation have been carried out (e.g., Hendrick, 1997; Gottschalk and Solli-Sæther, 2005; Kogut, 1988; Park and Ungson, 1997). However, only a very limited number of studies provide a broad investigation of success factors for interorganisational cooperation (Hoffmann and Schlosser, 2001). Most previous studies focus on one or a limited number of success factors.

Even more specifically, to the best of our knowledge, the only previous empirical study that explicitly deals with success factors for managing purchasing groups is a study carried out by Hendrick (1997) among 28 organisations that participate in purchasing groups. However, as we discuss later on in this paper, the results of Hendrick are not fully consistent with the results of existing studies on success factors for interorganisational cooperation (e.g., Hoffmann and Schlosser, 2001). It is unclear what causes these discrepancies. It could be due to the specific context of cooperative purchasing, but it could also be due to the sample or the methods used in the different studies.

Summarising, we observe many struggling purchasing groups and conclude that the literature seems unable to provide a comprehensive and consistent explanation for this. Therefore, we argue that it is both practically and academically relevant to investigate what makes purchasing groups successful. Our main objective is to consider a broad set of possible success factors specifically for managing a purchasing group. By doing this, we aim to find one or more critical success factors for managing purchasing groups. Our study, which follows the methodology used in Hoffmann and Schlosser (2001), can also shed light on discrepancies found between that study and the single existing broad study by Hendrick on success factors for managing purchasing groups.

This article is organised in the following way. First, we discuss methods to identify success factors, define success in the context of purchasing groups, and discuss the literature regarding potential success factors. Next, we describe the methodology used. Using our methodology, we test whether or not the potential success factors we derive from the literature are actual success factors in practice. In the analysis and discussion section, we describe and discuss the success factors for cooperative purchasing found in the present study. In the final section, we draw the main conclusions.